Bezos' e-book overhaul provides blueprint for newspaper foray

By Danielle Kucera, Sara Forden and Brad Stone, Bloomberg News

Wednesday, August 7, 2013

SAN FRANCISCO — Jeff Bezos has already transformed one traditional print business — books — into a digital one. The experience provides a blueprint for how the billionaire technology executive is now poised to overhaul newspapers following his $250 million acquisition of the Washington Post.

Since Bezos founded Amazon.com Inc. in 1995, he has forced the publishing industry to embrace e-books and digital reading devices. He has also made the Seattle-based company a leader in online advertising and collecting consumer data over the Web. Those strategies have helped vault Amazon into the world’s largest e-commerce provider and one of the top Internet companies with a market capitalization of $138 billion.

Bezos, 49, will bring that background to bear as he plunges into the newspaper industry with his deal Monday to buy the Post. The Graham family, which had owned the newspaper since 1933, decided to sell amid a steep decline in print advertising and as audiences shifted to reading news online.

“It’s clear that Bezos has a very deep and rich history in publishing, particularly since books were Amazon’s bread and butter and still are,” said Dan Kurnos, an analyst at Benchmark Co. “He’s got a lot of experience.”

In a letter Monday to Post employees, Bezos laid out the challenges ahead for newspapers, saying the “Internet is transforming almost every element of the news business.” Bezos, who is buying the Post as an individual and unaffiliated with Amazon, added that “we will need to invent, which means we will need to experiment.”

For Bezos, experimentation is nothing new. Over the years, the chief executive officer has pushed Amazon into everything from streaming video to hosting Web services and delivering groceries.

Bezos has also used his personal fortune — his net worth stands at $27.9 billion, according to the Bloomberg Billionaires Index — to invest prolifically outside Amazon through his investment fund, Bezos Expeditions. The fund has backed young companies such as Twitter, taxi service Uber Technologies, the 3-D printing company MakerBot Industries and robot firm Rethink Robotics.

Chief among Bezos’ experiments that have paid off is how Amazon has pushed the publishing industry toward a digital business model. Amazon began selling e-books in 2007 and unveiled the Kindle e-reading device that same year. By 2011, Amazon said its books for Kindle readers surpassed its print sales.

Many e-books now sell for prices close to those of print ones, a lesson the newspaper industry would do well to heed. The Kindle version of “A Game of Thrones” by George R.R. Martin sells for $9.99 on Amazon.com, compared with $13.36 for the paperback. Another book by Martin, “A Feast for Crows,” sells for more on the Kindle — $9.99, versus $6.58 for the print version.

Amazon has used demand from customers to push down prices of print books. At the same time, when Bezos introduced the Kindle, he offered the most popular books at prices close to paperback books, setting the bar for digital content for years to come.

“He’s managed to get e-book pricing pretty close to print pricing,” said Kurnos. “If he can do that in newspapers, then ultimately it’s a sustainable cash flow model.”

Amazon provides other strategies to Bezos for his move into newspapers. As print publications search for a way to stem ad- revenue declines, Amazon has increased online advertising sales, which are estimated to rise 40 percent to about $835 million in 2013 from the year prior, according to Emarketer Inc.

Amazon also has a trove of consumer data, from reading and shopping habits to credit card information. The company was a pioneer in targeting products to customers based on previous purchases — techniques that could benefit the newspaper industry as well.

“Amazon has acquired an incredible amount of data about its customers over the years, and advertisers are clearly interested in using that data to improve ad targeting,” Clark Fredricksen, vice president at EMarketer, said in an interview. “The opportunity is definitely there for the company to leverage that data on outside websites through the form of an ad network.”

How much Bezos will use his Amazon experiences with the newspaper is unclear. “Jeff is not coming in with a plan,” said Washington Post Chairman and CEO Don Graham in an interview. “Jeff knows how to get people together to develop successful changes in what we do.”

Graham said he and Bezos have known each other for more than 15 years, a relationship that ultimately fostered the sale. In the interview, Graham said he initially didn’t want to sell the Post but that he and his niece, Post Publisher Katharine Weymouth, began asking themselves at the end of last year “whether there might be some person or company out there who could bring something different.”

Investment bank Allen & Co. was hired to lead an auction of the Post and Graham approached several bidders. Graham declined to name the other parties.

At Allen’s Sun Valley, Idaho conference last month, Graham said he and Bezos had two face-to-face meetings that clinched the deal.

“I told Jeff what I thought would be a fair price and he agreed to it,” said Graham.

Even with the Post acquisition, Bezos is putting Amazon first. “His most important job is still his day job,” said Tom Alberg, a venture capitalist and Amazon board member who had been pre-briefed on the newspaper deal.

In his letter to Post employees, Bezos concurred. “I won’t be leading The Washington Post day-to-day,” he wrote. Nonetheless, he said, he is looking forward to the chance to transform the newspaper.

“I’m excited and optimistic about the opportunity for invention,” he said.